4.2.1 Selling to customers – communications

Having determined their classification, financial firms must be mindful of this when communicating with their customers.

Communication ahead of a transaction may typically involve either selling the services of the firm itself or promoting particular products.

As may be anticipated, the definition of what is ‘clear, fair and not misleading’ (referred to in the FCA’s principle 7) must take into account who the recipient is and, therefore, what may reasonably be viewed as appropriate, given the level of their financial sophistication.

When promoting products, firms do have to be explicit about the potential financial risks involved and the financial prospects for the investment. The nature of the returns from the investment should also be specified – are these in the form of interest, capital gain or some other return? Additionally, customers should be advised of the actual producers or managers of the product. This information is important because it advises the customer of the financial firms to whom they would be exposed, and who would have management responsibilities, if they invested in the product.

For retail customers, where the level of protection is greatest, communications about financial products are required to be clear and explicit. This means that the description of potential benefits of the products must be balanced against details of risks and, hence, potential losses – and without these risks being ‘played down’. Furthermore, these details must be provided in a way that is intelligible to the general public. So, it is essential when marketing products that:

In cases where the taxation treatment of the investment is referred to, it should be noted that this treatment depends on individual circumstances and could change if taxation rules are altered.

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Figure 1 Selling to customers.

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